KEY POINTS:
The weakening economic environment means a hefty takeover premium for The Warehouse Group is becoming more distant the longer it takes for the Court of Appeal to release its decision, analysts say.
A judgement on whether rival supermarket chains Foodstuffs and Woolworths can proceed with bidding for New Zealand's largest listed retailer is still pending, eight weeks after the court heard the Commerce Commission's appeal against the High Court decision allowing a takeover.
The share price has drifted down from the $6.00 close on the first day of the appeal hearing on April 28 to Friday's $4.19 close, after the retailer downgraded its profit guidance by 10 per cent because of deteriorating consumer confidence and retail spending.
The length of time the Court of Appeal has taken to release its decision - which had been widely expected to go against the Commerce Commission - may have prompted some jitters amongst investors.
"Obviously there's only so long that they're going to sit around and wait for this decision. The further it gets delayed the more people think there are doubts in relation to how that result will actually turn out," said Deutsche Bank analyst Kristan Walker.
Deutsche is still maintaining a takeout valuation favouring Australia's Woolworths at $7.00 a share.
"The only thing for Woolies though is that with the earnings going south at a rate of knots, then it's quite clear you'd have to expect that the amount that they'd be willing to pay would certainly be less than what it was 12, 18 or 24 months ago."
But the bank has had to revise the stock's fundamental valuation with each profit downgrade.
Walker's current valuation is $4.40.
"With the stock trading closer to the fundamental valuation, the implication there is that the Court of Appeal decision will rule in favour of the Commerce Commission."
A market commentator, who asked not to be named, said like Briscoe Group the Warehouse was being hit hard by a slowdown.
"The downward movement in the share price has been progressively building in a profit downgrade. The second thing is the whole corporate situation has been dragging on for quite a while."
The jitters became stronger the longer there was uncertainty, he said.
"If the operating environment is good, then shareholders and investors in the stock are quite happy to sit on their hands and wait for an outcome, but with the operating environment deteriorating, almost day by day and week by week, the risk that a favourable decision might not come through results in those who are nervous just letting the stock go.
"And there is a residual concern that if whichever way the finding, there could be yet another appeal.
"This saga has now dragged on for nearly two years, and you almost sense exhaustion setting in."
Any play on the Red Sheds from Woolworths and Foodstuffs will still require a two-day wait from the release of the court's decision - if it's in their favour.
The rivals, who each hold a 10 per cent stake, last month agreed to a moratorium on bidding until 48 hours after the Court of Appeal issues its judgment.
THE STORY SO FAR
* The Warehouse has been in play since September 2006, when founder Stephen Tindall revealed plans to privatise, offering $5.75 a share in partnership with Pacific Equity Partners.
* Later that month he was trumped by Woolworths, which bought a 10.1 per cent stake at $6.50 a share.
* In December 2006 Foodstuffs - already a 10 per cent owner - declared its intention to bid for The Warehouse. Foodstuffs and Woolworths applied for Commerce Commission approval to proceed.
* In late June 2007 the commission declined their applications.
* An appeal against that decision was heard in the Wellington High Court in October.
* On November 30 the High Court overturned the commission's decision.
* The commission applied for leave to appeal the decision and on January 31, the High Court granted it.
* The commission's appeal was heard in late April in the Appeal Court.
* On May 2, Woolworths and Foodstuffs agreed to a moratorium on bidding until 48 hours after the Court of Appeal issues its judgment.
